How Will a Consumer Proposal Affect My Credit?

Impact of a Consumer Proposal on Credit

A consumer proposal is a popular debt relief option, giving you the opportunity to climb out from underneath whatever sum of money you might owe.

While many people try to compare a consumer proposal and bankruptcy, the two are very different.

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When you file for bankruptcy, you’ll typically have to surrender assets including:


  • Vehicles;
  • Personal possessions;
  • Jewelry.


In some cases, you may even need to surrender your home to the bank depending on the amount of money you owe.

Unfortunately, many people find themselves in debt for reasons that are beyond their control.

Of course, there are many reasons for getting into debt, including reduced income, job loss, or credit card debt.

Not knowing which debt to pay off first, or how to go about doing it, can be overwhelming at times, which is exactly why some people turn to consumer proposals to settle with their creditors.

You can learn more about which debts to concentrate on first here.

How Does a Consumer Proposal Work?

According to the Bankruptcy and Insolvency Act of 1985, a consumer proposal allows individuals the opportunity to settle with creditors for less money than what is actually owed.

It’s almost an act of good faith, paying off some amount of money to your creditors while being able to release much of your debt.

The maximum amount of debt you can carry to file for a consumer proposal is $250,000, or $500,000 for a married couple.

The filing process starts off similarly to filing for bankruptcy.

You’ll need to work with a licensed bankruptcy trustee as a “middleman” of sorts, who will help you with your proposal.

Once the proposal is filed, interest will no longer accumulate on your debt, and your chances of getting rejected are quite low.

Will a Consumer Proposal Drop Your Credit Score?

Credit scores in Canada are measures on a scale of R1-R9.

Factors that contribute to your credit score include:


  • Payment history;
  • Public records;
  • Used vs. available credit;
  • Length of credit history.


How many times you inquire into your credit history can also contribute to your overall score.

An R1 credit ranking typically means you make all of your payments when you’re supposed to.

An R9 score typically means you’ve filed for bankruptcy.

So, where does a consumer proposal factor in?

How will it affect your credit?

The good news is that a consumer proposal won’t drop your credit score as far as bankruptcy does.

In most cases, it will bring your ranking down to an R7.

Unfortunately, an R7 is still a very low score, and it will stay there until the proposal ends.

The bad news?

A low credit score can affect you in a variety of different ways.

You may not be able to obtain a loan without a co-borrower.

If you are approved for a loan, you’ll typically find your interest rates to be higher since lenders will consider you to be high-risk.

If you’re looking for a new job and your employer asks to see your credit history, a low score might even prevent you from getting hired.

There is a bit of more good news, though.

Both Equifax and TransUnion will take off a consumer proposal from your credit report three years after you make your last payment and you are debt-free.

The faster you are able to make payments and fulfill your obligations on your consumer proposal, the sooner it will be off of your report.

Once it is removed, you can work on rebuilding your credit.

There is no reason you can’t eventually have a very high-ranking credit score if you continue to pay your bills on time.

Is a Consumer Proposal Right for You?

In many cases, filing a consumer proposal is better than filing for bankruptcy, especially if you anticipate that your income will increase and you’ll be able to pay it off in a timely manner.

It’s a safe debt consolidation option, and while it does impact your credit, the sooner you fulfill your financial obligations, the sooner you can start working on rebuilding your credit score in a way that may not be possible with bankruptcy.

Keep in mind that consumer proposals are public record, and you still may face some of the same challenges you would with bankruptcy while it’s on your credit report.

But, once the proposal is removed, you can take stronger financial steps toward staying out of debt for good.

Information on Consumer Proposals

Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal

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